Labor Force Participation

Today I was reading a blog stating that the labor force participation rate is at an all time low since the recovery from the recession. As an improving economy most often leads to higher employment, I began to question the causes of such a decline in the participation rate. Heidi Shierholz from epi.org claims that the biggest drop in the LFPR were among young workers, in particular men under the age of 25. In times of recession or a weakened economy, discouraged workers often drop out of the labor force with the incentive to receive welfare or unemployment benefits; however, there have not been increases in unemployment benefits with the current decrease in the labor force. This statistically unchanged level of unemployment benefits makes me wonder if the decrease in participation is due to a desire to increase the level of human capital and efficiency through education.

            Just last fall the unemployment rate for a high school graduate was 7.3%, whereas the unemployment rate for a college graduate was 3.8%. As we discussed in class, the recession could act to decease labor force participation rate in two ways: the recession can discourage workers enough until they simply quit and rely on unemployment benefits, or it can make a person realize the need to increase their own employment desirability through education.

 

 

http://www.washingtonpost.com/blogs/wonkblog/files/

 

            As this graph shows, the participation rate began to fall even before the recession hit. However, its rapid and continued decline implies that the decreased amount of jobs during the recession is not the sole—or current—cause of the lessened labor force participation rate.

 

Another possibility in the decrease in labor force participation rate is people on the brink of retirement feeling comfortable enough to finally retire and, thus, withdraw from the labor force. While this may be one effect from a more stable, promising economy, it does not appear to be the main cause of the decrease in labor participation.

In the last quarter the United States GDP, unemployment, and Labor Force participation rates have all worsened. However, statistically and historically these issues should not be overly worrisome. With the combination of the uncharacteristically harsh winter, the increase in retirement rates, and the vast increase in young adults attending college and graduate school, the economy is still stable and promising for the next quarter.

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One thought on “Labor Force Participation

  1. andrewcharette

    The decrease in labor force participation rate should cause the unemployment rate to fall, as we saw last quarter from 6.7% to 6.3%. However, this number can be misleading because the fall is not due to new job creation; rather it is due to people leaving the labor force for whatever reason. So this begs the question, which statistic is more effective at predicting the state of a nation’s economy?

    Reply

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